M/s. Gujarat Carbon & Industries Ltd., Baroda V. The ACIT.,Circle-1(1), Baroda

ITA 3231/AHD/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5939 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 17-04-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 06-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business expenditure; Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTAN T MEMBER GUJARAT CARBAN INDUSTRIES LTD, 6 TH FLOOR, OFTEL TOWER, R.C. DUTT ROAD, BARODA PAN: AAACG7273L (APPELLANT) VS ACIT 1(1) AAYAKAR BHAVAN, RACE COURSE, BARODA (RESPONDENT) ASSESSEE BY: SRI S.N. SOPARKAR, A.R . REVENUE BY: SRI K.C. MATHEWS, SR.D.R. DATE OF HEARING : 17-04-2014 DATE OF PRONOUNCEMENT : 29-04-2 014 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- THIS IS THE ASSESSEES APPEAL AGAINST THE ORDER OF LD. CIT(A)-I BARODA DATED 13-09-2010. 2. AT THE TIME OF HEARING ONLY FOLLOWING TWO GROUND S WERE PRESSED BY ASSSESSEE. ITA NO. 3231/AHD/2010 ASSESSMENT YEAR 2003-04 I.T.A NO.3231/AHD/2010 A.Y. 2003-04 PAGE NO GUJARAT CARBAN INDUSTRIES LTD VS. ACIT 2 1. THE LD. CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING DISALLOWANCE OF RS. 33,95,589/- BEING EXPENSES INCURRED BY THE COMPANY FOR STUDIES OF WHOLE TIME DIRECTOR ON THE GROUND OF NON-BUSINESS PURPOSE. 2. THE LD. CIT(A) ERRED IN FACT AND IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN M AKING ADDITION OF RS. 78,386/- BEING TDS WRITTEN OFF BY THE APPELLANT . 3. GROUND NO. 1 RELATES TO DISALLOWANCE OF 33,95,58 9/- BEING EDUCATIONAL EXPENSES OF DIRECTOR. 4. AO DURING THE ASSESSMENT PROCEEDINGS OBSERVED TH AT ASSESSEE DEBITED AN AMOUNT OF RS.33.66 LACS TOWARDS WHOLE TI ME DIRECTORS FOREIGN EDUCATION EXPENSES. THE ASSESSEE WAS REQUESTED TO FURNISH DETAILS AND NATURE OF THESE EXPENSES WITH EXPLANATION AS TO HOW THESE ARE ALLOWABLE EXPENSES WITH SUPPORTING EVIDENCE. IT WAS SUBMITTE D THAT ASSESSEE SPONSORED MBA STUDIES OF WHOLE TIME DIRECTOR SRI GO KENKA AND THAT THE EXPENDITURE WAS INCURRED TO IMPROVE THE MANAGEMENT AND PROFITABILITY OF THE COMPANY. THE AO HAS NOTED THAT THERE WAS NO PO LICY OF COMPANY OF SPONSORING STUDIES OF THE EMPLOYEES. MR. GOENKA WA S APPOINTED AS DIRECTOR ON 29-04-2002 AND BOARD RESOLUTION WAS PAS SED ON 24-07-2002 FOR STUDIES ABROAD AND HE RESIGNED ON 18-10-2003 AN D REAPPOINTED ON 20- 10-2003. SRI GOENKA IS THE SON OF GP GOENKA, THE CH AIRMAN OF THE ASSESSEE-COMPANY AND THEREFORE IT WAS HELD BY THE A O THAT THE PERSONAL EXPENDITURE OF SRI S. GOENKA WAS CLAIMED BY THE ASS ESSEE-COMPANY AND THE SAME WAS THUS DISALLOWED. I.T.A NO.3231/AHD/2010 A.Y. 2003-04 PAGE NO GUJARAT CARBAN INDUSTRIES LTD VS. ACIT 3 5. IN FIRST APPEAL ASSESSEE BESIDES REITERATING THE SUBMISSION BEFORE AO PLACED RELIANCE ON THE DECISIONS IN THE CASE OF JALANI HOLDING PVT LTD 42 TTJ 116 (DELHI) AND SAKAL PAPER 114 ITR 256 (BOM ). 6. LD. CIT(A) HOWEVER CONFIRMED THE ACTION OF AO BY OBSERVING AS UNDER:- 5.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORDER. IT IS AN ADMITT ED FACT THAT THERE IS NO POLICY OF THE COMPANY TO SPONSOR HIGHER STUDIES OF THE EMPLOYEES/DIRECTORS. CLAIM OF IMPROVEMENT OF BUSINESS EFFICIENCY BY SH. S GOENKA IS CONTINGENT UPON HIS COMPLETING THE MBA ABROAD AND POSSIBLY MEA NINGFULLY CONTRIBUTING TO THE APPELLANT COMPANY THEREAFTER. THE BUSINESS P URPOSE IS CONTINGENT, REMOTE AND IN THE REALM OF UNFORESEEN AND AT LEAST TWO STEPS AWAY FROM PRESENT INCURRING OF EXPENDITURE. THE EXPENDITURE I S PERSONAL IN NATURE AND NOT ALLOWABLE. THE DECISIONS RELIED UPON BY THE APP ELLANT ARE DISTINGUISHABLE ON FACTS AS IN THOSE CASES THE EXPENDITURE WAS IN R ELATION TO EMPLOYEES WHO HAD DISPLAYED SKILLS RELEVANT FOR THE BUSINESS. GRO UND NO. 2 IS DISMISSED. 7. BEFORE US LEARNED COUNSEL OF THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING DECISIONS AND REITERATED THE SUBMISSION M ADE BEFORE THE LOWER AUTHORITIES:- I). ORDER OF HONBLE ITAT, AHMEDABAD IN CASE OF MAZ DA LTD ITA NO. 3190/AHD/2008 II). JUDGMENT OF HONBLE KARNATKA HIGH COURT IN CAS E OF RAS INFORMATION TECHNOLOGY (P) LTD. 12 TAXMANN.COM 158 III). ORDER OF HONBLE ITAT MUMBAI IN CASE OF J.B. ADVANI & CO LTD. LD. DR ON THE OTHER HAND BESIDE PLACING RELIANCE ON THE ORDERS OF LOWER AUTHORITIES ALSO TRIED TO DEFEND THE ORDERS OF LOWE R AUTHORITIES ON THE GROUNDS WHICH WERE NOT TAKEN EITHER BY AO OR BY LD. CIT(A) WHILE MAKING/CONFIRMING THIS DISALLOWANCE. SINCE LEARNED COUNSEL OF THE ASSESSEE DULY MET THOSE GROUNDS, WE ARE NOT MAKING THEM PART OF THIS I.T.A NO.3231/AHD/2010 A.Y. 2003-04 PAGE NO GUJARAT CARBAN INDUSTRIES LTD VS. ACIT 4 ORDER. THE AO HAS MADE DISALLOWANCE OF RS. 33,95,5 89/- BY TREATING THE EXPENSES TOWARDS WHOLE TIME DIRECTORS FOREIGN EDUC ATION AS PERSONAL EXPENDITURE OF SHRI GOENKA ON THE GROUND THAT ASSES SEE-COMPANY HAD NO POLICY OF SPONSORING STUDIES OF THE EMPLOYEES. LD. CIT(A) HAS ALSO CONFIRMED THIS ACTION OF THE AO BY FURTHER HOLDING THAT BUSINESS PURPOSE TO THESE EXPENSES IS CONTINGENT, REMOTE AND IN THE REA LM OF UNFORESEEN AND AT LEAST TWO STEPS AWAY FROM PRESENT INCURRING OF E XPENDITURE WHILE ASSESSEES CONSISTENT CONTENTION HAS BEEN THAT ASSE SSEE-COMPANY HAS CLAIMED THESE EXPENSES AS PER BOARDS RESOLUTION OF THE COMPANY TO SPONSOR FOREIGN STUDIES EXPENSES OF SRI GOENKA, WHO LE TIME DIRECTOR OF THE COMPANY AND THE SAME CANNOT BE DISALLOWED SIMPLY BE CAUSE MS. G. GOENKA IS THE SON OF MANAGING DIRECTOR OF THE COMPA NY AND FOR MAKING THIS SUBMISSION RELIANCE WAS PLACED ON CERTAIN CASE LAWS. WE FURTHER FIND THAT THERE IS NO DISPUTE ABOUT THE FACT THAT THESE EXPENSES WERE INCURRED AS PER THE RESOLUTION OF THE COMPANY DATED 24 TH JULY, 2002 WHICH READS AS UNDER:- EXTRACT OF THE MINUTES OF THE MEEING OF THE BOARD OF DIRECTORS OF GUJARAT CARBON AND INDUSTRIES LIMITED HELD ON WEDNESDAY, THE 24 TH JULY, 2002 AT MUMBAI TO APPROVE SPONSORING SRI SHRIVARDHAN GOENKA FOR ST UDIES WITH J.L. KELLOGG SCHOOL OF MANAGEMENT NORTHWESTERN UNIVERSIT Y, USA THE CHAIRMAN PLACED BEFORE THE BOARD A PROPOSAL SHR I SRIVARDHAN GOENKA WHOLE-TIME DIRECTOR OF THE COMPANY HAS PERUS ED OF FIRST YEAR OF HIS MBA AT THE WORLD RENOWNED KELOGG SCHOOL OF MANAGEMENT NORTH WEST UNIVERSITY OF USA. THE MANAG ING DIRECTOR HAS PROPOSED THAT IT WILL BE IMMENSELY BENEFICIAL T O THE COMPANY IF SHRI SHRIVARDHAN GOENKA COMPLETES THE COURSE BY PER USING THE SECOND YEAR CURRICULUM. IT IS PROPOSED TO SPONSOR SHRI SHRIVARDHAN COMPANY SHALL PROVIDE FINANCIAL SUPPORT TO THE EXTE NT OF APPROX US$ 93,500 ( UNIVERSITY TUITION FEES, BOARDING AND LODG ING, TRAVELLING, I.T.A NO.3231/AHD/2010 A.Y. 2003-04 PAGE NO GUJARAT CARBAN INDUSTRIES LTD VS. ACIT 5 INSURANCE ETC) TOWARD STUDY AND EXPENSES TO SHRI S HRIVARDAHN GOENKA. THE BOARD DISCUSSED THE MATTER AND PASSED THE FOLLOWING RESOLUTION OR WITHOUT MODIFICATIONS: RESOLVED THAT THE BOARD AUTHORIZED MR. L.K. GUNJAN I, MANAGING DIRECTOR OF THE COMPANY TO ENTER INTO AN AGREEMENT WITH MR. SHRIVARDHAN GOENKA, THE WHOLE-TIME DIRECTOR ENABLIN G MR. GOENKA TO PERUSE THE STUDIES AND ENSURING THAT MR. SHRIVAR DHAN GOENKA SERVICES ARE AVAILABLE TO THE COMPANY AT LEAST FOR PERIOD OF TWO YEARS AFTER COMPLETION OF STUDIES. IN PURSUANCE OF THIS RESOLUTION AN AGREEMENT BETWEE N THE ASSESSEE AND SRI GOENKA WAS SIGNED ACCORDING TO WHICH AFTER STUD IES MR. GOENKA WILL WORK FOR TWO YEARS AFTER HIS RETURN FROM USA. THER E WAS NO DISPUTE ABOUT THE FACT THAT THIS AGREEMENT WAS ALSO ACTED UPON. ON THESE UNDISPUTED FACTS RATIO OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF RAS INFORMATION TECHNOLOGY PVT. LTD 12 TAXMAN 58 IS SQUARELY APPLIC ABLE WHEREIN ONE A WAS THE MANAGING DIRECTOR OF THE ASSESSEE-COMPANY. HE WAS SENT TO USA FOR HIGH STUDIES. THE ASSESSEE SPENT MONEY TOWARDS HIS EDUCATION AND THE SAID AMOUNT WAS CLAIMED U/S. 37(1). THE SAID D EDUCTION WAS DISALLOWED BY THE AO WHICH ORDER WAS CONFIRMED BY F IRST APPELLATE AUTHORITY. THE TRIBUNAL HOWEVER ALLOWED THE ASSESS EES CLAIM AND FURTHER APPEAL OF THE REVENUE WAS DISMISSED BY THE HONBLE KARNATAKA HIGH COURT. SIMILAR VIEW WAS TAKEN BY HONBLE ITAT AHME DABAD IN THE CASE OF MAZDA LTD. 7.1 AS FAR AS CASE LAWS RELIED BY LD. DR IS CONCERN ED, WE FIND THAT THOSE ARE DISTINGUISHABLE ON FACTS AND HENCE NOT APPLICAB LE TO THE FACTS OF THIS CASE. IN THE NATCO EXPORT PVT. LTD VS. CIT 345 ITR 188 ASSESSEE INCURRED EXPENDITURE ON EDUCATION OF ITS DIRECTOR ABROAD. T HIS EXPENDITURE WAS NOT HELD TO BE ALLOWABLE AS BUSINESS EXPENDITURE BY THE HONBLE HIGH COURT IN THE ABSENCE OF ANY BOND EXECUTED BY DIRECTOR THAT H E WOULD WORK FOR I.T.A NO.3231/AHD/2010 A.Y. 2003-04 PAGE NO GUJARAT CARBAN INDUSTRIES LTD VS. ACIT 6 ASSESSEE AFTER COMPLETING HER STUDIES. WHILE IN TH IS CASE THERE IS AN AGREEMENT BETWEEN THE DIRECTOR AND THE COMPANY THAT DIRECTOR WILL WORK FOR TWO YEARS AFTER COMPLETING HIS STUDIES AND THERE IS NO DISPUTE THAT HE WORKED FOR THOSE TWO YEARS WITH THE ASSESSEE. FACT S BEING DIFFERENT THE RATIO OF THAT CASE IS NOT APPLICABLE TO THIS CASE. SIMILARLY IN ANOTHER JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF SHASHI BHUSHAN VS. CIT ASSESSEE LAWYER INCURRED CERTAIN EXPENDITURE TO WARDS HEART SURGERY. HE CLAIMED DEDUCTION OF SAID EXPENDITURE THAT THE E XPENDITURE INCURRED BY HIM ON CORONARY SURGERY WAS CONDUCTED ON HIM, WAS A KIN TO EXPENSES INCURRED ON CURRENT REPAIR OF A PLANT. THE ASSESSE ES STAND THUS WAS THAT A HUMAN HEART WAS IN THE NATURE OF A PLANT. AO WAS HO WEVER OF THE VIEW THAT EXPENDITURE IN ISSUE WAS IN THE NATURE OF A PERSONA L EXPENDITURE AND HENCE NOT ALLOWABLE AS DEDUCTION EITHER U/S. 31 OR EVEN U/S. 37. CIT(A) AS WELL AS TRIBUNAL UPHELD THE ORDER OF AO. ON FURTHER APPEAL HONBLE HIGH COURT DISMISSED THE ASSESSEES APPEAL. WE ARE SURP RISED AS TO HOW LD. DR HAS RELIED ON THIS DECISION AS ISSUE IN THAT CAS E IS TOTALLY DIFFERENT FROM THE ISSUE IN THIS CASE. SIMILARLY THE OTHER CASE L AWS RELIED BY LD. DR ARE ALSO DISTINGUISHABLE ON FACTS. 8. IN VIEW OF ABOVE DISCUSSION, WE ARE INCLINED TO HOLD THAT EXPENSES INCURRED BY ASSESSEE-COMPANY ON THE FOREIGN EDUCATI ON OF SRI GOENKA WHOLE TIME DIRECTOR OF THE COMPANY, BE TREATED AS B USINESS EXPENDITURE OF THE ASSESSEE. THEREFORE, ADDITION MADE BY AO AND S USTAINED BY LD. CIT(A) DISALLOWING THESE EXPENSES IS HEREBY DELETED . THIS GROUND OF ASSESSEES APPEAL IS ALLOWED. 9. SECOND GROUND RELATES TO ADDITION OF RS. 58,386/ - BEING TDS WRITTEN OFF BY THE ASSESSEE. I.T.A NO.3231/AHD/2010 A.Y. 2003-04 PAGE NO GUJARAT CARBAN INDUSTRIES LTD VS. ACIT 7 10. DURING THE ASSESSMENT PROCEEDINGS AO NOTICED TH AT ASSESSEE HAD WRITTEN OFF AN AMOUNT OF RS. 58,386/- AS DEBIT BALA NCE IN TDS ACCOUNT FOR THE PERIOD OF,1991-92 AND 1993-94. THE TDS AMOUNT BEING NOT REVENUE IN NATURE CLAIM OF THE ASSESSEE WAS DISALLOWED BY AO. 11. BEFORE LD. CIT(A) SUBMISSION OF THE ASSESSEE WA S THAT TDS AMOUNT WAS RECEIVABLE FOR ASSESSMENT 1991-92 AND 1993-94 A ND THE ASSSESSEE HAD OFFERED GROSS INCOME TO TAX BUT THE CREDIT FOR TDS WAS NOT CLAIMED FOR NON-RECEIPTS OF TDS CERTIFICATE. SINCE THE TDS CERT IFICATES WERE NOT RECEIVED, IT WAS DECIDED TO WRITE OFF THIS AMOUNT A S THE SAME WAS ALLOWABLE U/S. 28. LD. CIT(A) HOWEVER CONFIRMED THE ACTION OF AO. BEFORE US REVENUE HAS RELIED ON THE DECISION OF ITAT MUMBA I BENCH IN THE CASE OF RICOH INDIA LTD VS. DCIT [2013] 38 TAXMANN.COM 2 64 WHICH IS SQUARELY APPLICABLE TO THE FACTS OF THIS CASE IN FAVOUR OF R EVENUE AND AGAINST ASSESSEE WHICH IS CLEAR FROM THE FOLLOWING HEAD NOT E OF THAT CASE:- V. SECTION 40(A)(II), READ WITH SECTION 28(I), OF THE INCOME-TAX ACT, 1961 - BUSINESS DISALLOWANCE - TAXES [IDS RECEIVABLE] - AS SESSMENT YEAR 2007- 08 - WHETHER TAX PAYMENT IS NOT A CHARGE AGAINST IN COME BUT APPLICATION OF INCOME AND, THEREFORE, ANY SUM PAID ON ACCOUNT O F TAXES ON PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION, IS NOT DEDUCTI BLE - HELD, YES - ASSESSEE'S CASE WAS THAT CERTAIN PARTIES MADE PAYME NTS TO ASSESSEE AFTER DEDUCTION OF TAX AT SOURCE BUT FAILED TO ISSU E TDS CERTIFICATES AS A RESULT OF WHICH SAID AMOUNT COULD NOT BE RECOVERED AND HENCE, SAME WAS TO BE ALLOWED AS BUSINESS LOSS - WHETHER ONCE ASSES SEE RECEIVED NET AMOUNT FROM PARTIES AND AMOUNT OF TDS WAS DEPOSITED IN GOVERNMENT EXCHEQUER, NOTHING REMAINED DUE FROM PARTIES AND, R ESULTANTLY, THERE COULD BE NO QUESTION OF INCURRING ANY BUSINESS LOSS OR TREATING AMOUNT OF TDS NOT RECOVERED AS SHORT RECEIPTS - HELD, YES - W HETHER FURTHER, SINCE THIS AMOUNT REPRESENTED TAX DEDUCTED AT SOURCE BY P ARTIES ON BEHALF OF ASSESSEE, SAME WAS IN NATURE OF TDS RECEIVABLE - HE LD, YES - WHETHER, CONSEQUENTLY DEDUCTION CLAIMED BY ASSESSEE COULD NO T BE ACCEPTED - HELD, YES [PARA 13] [IN FAVOUR OF REVENUE] I.T.A NO.3231/AHD/2010 A.Y. 2003-04 PAGE NO GUJARAT CARBAN INDUSTRIES LTD VS. ACIT 8 IN VIEW OF THE ABOVE, ORDER PASSED BY LD. CIT(A) IS HEREBY UPHELD AND THIS GROUND OF ASSESSEE IS DISMISSED. 12. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (ANIL CHATURVEDI) ( D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 29/04/2014 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,